Dow rises 150 points as Big Tech leads gains after soft inflation data

US stocks closed higher on Wednesday as investors welcomed another softer-than-expected inflation report and a strong start to the second-quarter earnings season, while rotating out of semiconductor stocks and into large-cap technology names.

The Dow Jones Industrial Average gained 150.25 points, or 0.29%, to close at 52,658.52.

The S&P 500 advanced 0.38% to 7,572.42, while the Nasdaq Composite climbed 0.62% to finish at 26,269.23.

Big Tech rallies as semiconductor stocks retreat

Large-cap technology companies led the market higher as investors shifted away from semiconductor shares following their recent gains.

Amazon, Microsoft and Alphabet each rose around 3%, while Apple gained 4%.

Chipmakers, however, came under pressure. Micron Technology dropped 7%, Lam Research declined more than 4%, Intel lost 5%, and Advanced Micro Devices fell 3%.

The VanEck Semiconductor ETF (SMH) also declined 2%.

Outside the technology sector, investor sentiment was supported by another round of strong corporate earnings.

BlackRock and Morgan Stanley both reported quarterly profits that exceeded Wall Street expectations, reinforcing optimism about the early stages of the earnings season.

PayPal also surged after Reuters reported that Stripe and private equity firm Advent International had jointly offered to acquire the payments company for $60.50 per share, representing a significant premium to its previous closing price.

Analysts currently expect S&P 500 companies to deliver year-over-year earnings growth of 23.7% for the second quarter, according to LSEG data.

Softer inflation eases near-term Fed concerns

Investor sentiment was also supported by fresh evidence that inflation continues to moderate.

The Producer Price Index unexpectedly declined 0.3% in June, compared with economists' expectations for no monthly change.

The report followed Tuesday's cooler-than-expected Consumer Price Index reading, strengthening expectations that inflationary pressures may be easing.

The annual producer inflation rate stood at 5.5%.

The latest inflation data reduced expectations that the Federal Reserve will raise interest rates at its July meeting.

According to CME's FedWatch Tool, markets now assign roughly a 10% probability of a 25-basis-point rate increase this month, down sharply from 31% a week earlier.

Despite the improved inflation outlook, investors continue to expect the Federal Reserve could raise rates later this year.

Futures markets indicate about a 60% probability that interest rates will be a quarter- or half-percentage point higher by the conclusion of the October meeting.

New York Federal Reserve President John Williams also said inflation appears to be moving in the right direction, while Fed Governor Lisa Cook indicated she remains prepared to act if inflation fails to slow further.

Geopolitical risks remain in focus

While inflation data supported equities, investors continued to monitor escalating tensions in the Middle East.

The latest inflation readings largely reflected conditions before the recent escalation between the United States and Iran over the Strait of Hormuz.

Renewed military action has raised concerns that higher energy prices could eventually revive inflationary pressures and complicate the Federal Reserve's policy outlook.

Even so, Wednesday's combination of softer producer inflation, solid corporate earnings, and strength in large-cap technology stocks helped push all three major US indexes higher despite continued weakness across semiconductor shares.